A reverse mortgage is a loan whose guarantee is made up of a mortgage loan that normally falls on a habitual residence.
What the bank does is grant (with certain requirements) a loan with the guarantee of a home. Thus, it happens that the usual mortgage decreases over time and in this case the debt usually increases. The limit will be the moment when someone, usually the heirs, takes care of it. This guarantees the ownership of said home.
Some Reverse Mortgage Considerations
This product is granted by financial entities or insurance companies. In addition, its objective is to become a help for people with financial problems. For the above reason, there are a number of considerations to take into account:
- Normally, the person is required to be over 65 years of age or have a certain degree of disability (in Spain it is 33%) or dependency.
- On the other hand, the home must be appraised and have damage insurance. The objective is to protect the asset that serves as collateral.
- The amount of the loan will depend on the age of the applicant, whether or not it is a habitual residence and the way in which the money is received (rent, one-time payment ...).
- The heirs can keep ownership of the home if they pay off the debt. Otherwise, the bank may execute the mortgage, but only on its value and not on the personal assets of the heirs. You can also choose to sell.
- The usual thing, once requested, is that the bank requires us to cancel the mortgage that may exist.
- The payments to be received can consist of a single one, which usually includes interest or a certain periodic income.
In most countries, this financial product is precisely regulated. The reason is to avoid possible abuses towards the debtor. The rule usually requires banks to provide an independent advisory service to the client. Normally this service is usually carried out by private companies and the cost is assumed by the bank.
On the other hand, regarding its taxation, it must be taken into account that the money received is not an income. This has an implication in the income tax and that is that you would be exempt from paying it. Therefore, the general rule is that we should not pay any tribute for it.
Finally, you have to consider the interest and insurance to pay. Both amounts can be very high. In fact, sometimes the loan may be more than the value of the home. In these cases, the heirs usually renounce them, since it is not worth paying the debt if the asset is worth less.
This last aspect has led some countries, including Spain, to sue. In fact, in this there are some sentences that have been considered abusive. This has already happened with other matters such as floor clauses, considered illegal on many occasions. Therefore, if we believe that we are in this situation, it is best to inform ourselves and, where appropriate, act.
Tags: Business administration comparisons